Full moon reversal & doing nothing .. football might save the world

It was a full moon last night on 14 May 2014 & usually more often than not, it signals a short term market top or reversal especially in equities. We did see an intraday high where S&P500 pushed above 1900 before reversing lower. It does not mean that we do not get a potential summer rally squeeze in risky assets https://asianmacro.com/2014/05/13/the-summer-carry-melt-up-in-risk-assets/ as we are not into summer yet but just knocking the door around the corner.

However, it does bring to mind the uncertainty & sense of not knowing what to do on certain days with conviction especially by the humble Asianmacro here who is only a small minion in the big scheme of things in the financial markets. The only thing that made sense is the video clip produced by Samsung assembling some of the best footballers on Earth to save us from an Alien invasion where the outcome is determined by a football match .. what else is new!

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From the chart above, if you look at the spread between the 1st & 2nd VIX futures contract, we are back again to 155 b.p. difference. Usually a big & growing difference where the 2nd contract value is greater than the 1st contract value implies an upward sloping volatility curve (for VIX) & represent a normalisation of sentiment (or complacency).  A small or narrowing difference and in the extreme when it goes to negative value implies an inverted volatility curve (for VIX) where heightened fear of imminent risk of crash in markets resulted in buying of volatility (or VIX) in near contract over that of far contracts.

The above is just a generalisation so as not to bore most of you who might not be equity derivatives & volatility traders. However, as you can see above, whenever we reach 155-175 b.p. spread in VIX 1st & 2nd futures, we do see a correction lower in S&P500 subsequently for a short period of time.  Anyway, there are just so many mixed signals in the markets at the moment. Sometimes it’s best to just sit back on the sidelines & wait …

“The desire for constant action irrespective of underlying conditions is responsible for many losses on Wall Street even among the professionals, who feel that they must take home some money every day, as though they were working for regular wages.” – Jesse Livermore

 

FIFA14 World Cup and financial markets

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Football, rugby, cricket, baseball, (*OK American football & Aussie rules football too just to be inclusive) are popular sports with most in the global financial markets. With the impending FIFA14 World Cup upon us in summer, what will happen to the traders & portfolio managers in banks, hedge funds, pension funds, mutual funds & insurance companies? Short of abandoning their posts, their attention will be on the TV in the dealing room playing that match while they root for their teams.  Only the algos running the HFTs machines will continue to do their work unfailingly!

There have been many research done in the recent past to suggest anaemic volumes in stock markets & also of declines when a country loses a game http://www.nltimes.nl/2014/01/29/world-cup-losses-trigger-stock-market-drop/.  Even the venerable ECB had done a study on it before http://espn.go.com/sports/soccer/story/_/id/7573861/stock-market-trading-slows-world-cup-study-says as reported & the actual study can be seen here http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1424.pdf.

However, this FIFA14 World Cup fever does increases the likelihood of the potential path of least resistance .. which is for a higher stock market & in risky assets in general as uninvolved cash on the sidelines, cautious traders & portfolio managers failed to invest & tracked the grinding higher markets. Perhaps, the silent algos in HFTs who do not watch any FIFA14 World Cup matches might get it right & actually be the culprits pushing & buying the markets even higher from here!

The summer carry melt-up in risk assets

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The hardest trade to put on mentally & physically in execution more often than not ends up being the right profitable trade. This was learnt the hard way by Asianmacro over the years like when overnight & tomorrow/next Thai-baht (THB) rate was at 10% at mid-day at the onset on the Asian crisis in May 1997, when it was only 3% in the morning, it still made sense to pay up to secure any funding if you really need them. It ended up at 1,000% by late afternoon & everything keeled over.

There is a sense of deja-vu at the moment except that this time instead of the markets keeling over, there seems to be a slow motion melt-up in risk assets led by U.S. stock markets with S&P500 leading the way while Nasdaq100 & Russell2000 recovered from their respective corrections over the recent weeks.

From the chart above, where both the EUR/AUD FX cross & VIX bear high correlation & R-square with each other.  Everything seems to suggest with declining VIX and a continued search for FX carry best represented by EUR/AUD shorts (to earn the interest rate differential between EUR & AUD) … the pain trade is to see risky assets melt up even more into summer!

To Kill a Mocking Treasury note

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It has been tough trading & positioning in interest rates in 2014. Anybody telling you otherwise is either lying or very lucky. From the chart above, you can see that U.S. 10-year Treasury note yields have moved from 3.10% to 2.55% in January; and ever since whipped around every 1 – 2 weeks between 2.55% & 2.80% very erratically … Mocking at all bulls & bears in Treasuries.

Now every lay person will say that it then presents a simple ”range trading” strategy of 2.55 – 2.80% for the supposed smart trader to monetise.  Well in real life, it might not be so simple as the prices gap back & forth and the supposed extremities occur during U.S. economic data releases in very short time frames in a blink of an eye more often than not.  As such, you will be lucky to capture at most 50% of these moves. And if you are unlucky, you get stopped out at some of these ”instant algo flash up or crash down” while still building your positions.  And we are talking about ”basis points” here … where making 10 b.p. or 0.10% is like a home run these days! Something that any lay person on the street will not really care about or bother.

During such times, perhaps it is the ”no stops”, ”no leverage” & ”no haste” real money investing approach that works best in the bond markets now.  Essentially replicating a ”long gamma” approach of ”buying low” and ”selling high” … in putting on positions at the 2.55 – 2.80% range with preparations for overshoots at times but not stopping out.

Asianmacro is short June14 10-years Treasury futures late last week (i.e. paid rates & betting on higher yields in the interim).

How many screens do you need?

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This dude beats me hands down. Mrs Asianmacro thought my 12 screens set-up was already an overkill, wait till I show her this!

Once upon a time, except for the CEO of the investment bank who does not even need a PC as everything is screened & read out to him by his assistants. The sign of how important a trader was lies in the number of screens & where he/she sat in the dealing room. Only the BSD (*whether he has a screen each to play youtube, PC games instead of actual price/data stream does not matter) sat in prime real estate right in the middle of the dealing room with the minions spread out into the ‘suburbs’ with their miserable 2 – 4 screens standard set-up.  Anyway supposed trading heads in banks or hedge fund honcho with only 1 – 2 screens have either gone managerial full-time or achieved nirvana like Warren Buffet where he just buys and hold forever.

Over the years, through trial & error, Asianmacro has found that 8 – 12 screens work best as everything will be within peripheral eye-ball view of about 140 degrees. Anything more becomes bragging rights … anything less, you probably need many minions to monitor & execute on your behalf.

Macau gaming … casinos caught between a rock & a hard place

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There is definitely no place in Asia and even the world that is more glitzy, over-the-top & catering to every debaunchery that you can think of except in Macau.  Casinos raked in the money over the last few years especially when the gambling addicted mainland Chinese were unleashed onto the gaming tables like pent up addicts.  But of course a lot & how much of that money flow onto the gaming tables is anybody’s guess on the percentage which came from money laundering of ill-gotten gains in China. These sums were brought into Macau that is widely speculated through various means as discussed here http://www.businessinsider.com/how-people-use-macau-to-launder-money-2013-11?IR=T&.

SJM (800 HK), Galaxy (27 HK), Wynn Macau (27 HK), Melco (200 HK), Sands China (1928 HK) & MGM China (2282 HK) that are the listed gaming stocks of the casino operators soared in the last 2 years.  However, with the anti-corruption crackdown in China initiated with a renewed vigour since late 2013, the gaming stocks reached a top in January 2014 & have fallen about -26% since according to the chart above; showing the performance of a composite basket of gaming stocks.

With no let-up in China President Xi jinping drive to stamp out financial sleaze by punishing “tigers and flies” – corrupt officials at all levels of the ruling Communist party of China, prospects do not look bright still.  http://www.ft.com/intl/cms/s/0/0bf0de6c-d6a2-11e3-907c-00144feabdc0.html#axzz312j7F7nE.

Asianmacro is going short on Macau gaming stocks using the composite basket as reference at 67 to 70 level & targeting a further -30% drop to 46-50 level.

Let’s roll the dice indeed!

 

 

Who wants to be a trader millionaire ?

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The 2015 Lamborghini Huracan LP610-4 is supposed to be comfortable on the road & also superb for that weekend track day with the boys. Now how should I know given that I am not about to blow away $1 million on this toy.

From the canyon of Wall Street in Manhattan, to the City & Canary Wharf in London to Raffles Place (and now Marina Bay) in Singapore; successful traders in banks and funds go hand-in-hand with their fancy rides & loud exhaust notes!

Many unemployed chaps have been eyeing that lifestyle giving rise to the growing ranks of day-traders including those who signed up for many ‘get rich through trading’ courses thinking that it can magically transform anybody into the next market wizard http://www.bbc.co.uk/programmes/b01s8mnx.

Interestingly, even in the ranks of the real bank traders, those numbers are diminishing with impending job cuts if they have not been thinned by now with Barclays announcing another 15,000 job cuts after dismal results 2 days back http://www.bbc.com/news/business-27312798.

Asianmacro used to see quite a number of Ferraris & Lamborghini cars parked at One Raffles Quay at Marina Bay in Singapore whenever he was in town & visiting that area.  I have been seeing fewer of those cars the last time I went by & perhaps they are found here for sale now: http://www.sgcarmart.com/used_cars/listing.php?BRSR=0&MOD=Ferrari&RPG=20&VEH=8http://www.sgcarmart.com/used_cars/listing.php?MOD=Lamborghini&RPG=20&VEH=8

Not a good sign indeed when it runs to 4 pages of exotic cars for sale in each …